Income Taxes

12 Months Ended

Dec. 31, 2019

Income TaxesThe Tax Cuts and Jobs Act ("Tax Act") was signed into law on December 22, 2017. Included as part of the law, was a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018. Based upon the change in the tax rate, the Company revalued its net deferred tax asset at December 31, 2017. As a result of the enactment of the Tax Act, the Company recognized an additional tax expense of $3.9 million for the year ended December 31, 2017.

The current and deferred amounts of income tax expense (benefit) for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):


	Years ended December 31,
	2019		2018	2017
Current:
Federal	$	22,427	41,578	4,163
State	10,354		2,493	1,731
Total current	32,781		44,071	5,894
Deferred:
Federal	1,650		(17,302)	39,003
State	24		(1,239)	1,631
Total deferred	1,674		(18,541)	40,634
	$	34,455	25,530	46,528

The Company recorded a deferred tax expense (benefit) of $6.6 million, ($2.4) million and ($1.4) million during 2019, 2018 and 2017, respectively, related to the unrealized gains (losses) on available for sale debt securities, which is reported in accumulated other comprehensive income (loss), net of tax. Additionally, the Company recorded a deferred tax (benefit) expense of ($463,000), $379,000 and ($315,000) in 2019, 2018 and 2017, respectively, related to the amortization of post-retirement benefit obligations, which is reported in accumulated other comprehensive income (loss), net of tax.

A reconciliation between the amount of reported total income tax expense and the amount computed by multiplying the applicable statutory income tax rate is as follows (in thousands):


	Years ended December 31,
	2019		2018	2017
Tax expense at statutory rates ⁽¹⁾	$	30,889	30,223	49,167
Increase (decrease) in taxes resulting from:
State tax, net of federal income tax benefit	8,197		1,002	2,185
Tax-exempt interest income	(3,082)		(2,839)	(5,097)
Bank-owned life insurance	(1,322)		(1,158)	(2,343)

Enactment of Tax Act	—		—	3,912
Other, net	(227)		(1,698)	(1,296)
	$	34,455	25,530	46,528

(1) The statutory tax rate for both 2019 and 2018 was 21%. For 2017, the statutory tax rate was 35%.

The net deferred tax asset is included in other assets in the Consolidated Statements of Financial Condition. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are as follows (in thousands):


	2019		2018
Deferred tax assets:
Allowance for loan losses	$	14,313	13,968
Post-retirement benefit	6,946		7,481
Deferred compensation	1,175		1,371

Purchase accounting adjustments	1,629		1,562
Depreciation	750		215
SERP	688		694
ESOP	1,606		1,929
Stock-based compensation	4,747		4,464
Non-accrual interest	417		867
Unrealized loss on available for sale debt securities	—		3,599


Federal Net Operating Loss ("NOL")	321		363
Pension liability adjustments	1,821		1,358
Other	1,223		2,164
Total gross deferred tax assets	35,636		40,035

Deferred tax liabilities:

Pension expense	7,017		7,322
Deferred loan costs	5,064		4,872
Investment securities, principally due to accretion of discounts	70		93

Intangibles	1,393		1,159

Originated mortgage servicing rights	140		165
Unrealized gain on available for sale debt securities	3,038		—
Net unrealized gain on hedging activities	114		—
Total gross deferred tax liabilities	16,836		13,611
Net deferred tax asset	$	18,800	26,424

Retained earnings at December 31, 2019 includes approximately $51.8 million for which no provision for income tax has been made. This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include the failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to stockholders. At December 31, 2019, the Company had an unrecognized tax liability of $13.4 million with respect to this reserve.

As a result of the Beacon acquisition in 2011, the Company acquired federal net operating loss carryforwards. There are approximately $1.5 million of NOL carryforwards available to offset future taxable income as of December 31, 2019. If not utilized, these carryforwards will expire in 2031. Pursuant to the Tax Act, NOLs created after December 31, 2017 may be carried forward indefinitely and utilization is subject to 80% of taxable income. The federal NOLs are subject to a combined annual Code Section 382 limitation in the amount of approximately $197,000. Management has determined that it is more likely than not that it will realize the net deferred tax asset based upon the nature and timing of the items listed above. In order to fully realize the net deferred tax asset, the Company will need to generate future taxable income. Management has projected that the Company will generate sufficient taxable income to utilize the net deferred tax asset; however, there can be no assurance that such levels of taxable income will be generated.

The Company’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company did not have any liabilities for uncertain tax positions or any known unrecognized tax benefits at December 31, 2019 and 2018.

The Company and its subsidiaries file a consolidated U.S. Federal income tax return. For tax periods prior to December 31, 2018, New Jersey tax law does not and has not allowed for a taxpayer to file a tax return on a combined or consolidated basis with another member of the affiliated group where there is common ownership. As a result of the newly enacted legislation that New Jersey effectuated on July 1, 2018, beginning in 2019, the Company and its subsidiaries will be required to file a combined New Jersey state income tax return on apportioned and allocated income. Also, the Company and its subsidiaries file a combined New York State income tax return on apportioned and allocated income. The Company, through its bank subsidiary, files a Pennsylvania Mutual Thrift Institution Tax return. The Company's Federal and New York State income tax returns are open for examination from 2017, the New Jersey State income tax returns are open for examination from 2016, and the Pennsylvania Mutual Thrift Institutions return is open from 2016. During the fourth quarter of 2017, the Internal Revenue Service completed its examination of the Company's 2014 Federal tax return. The completion of the examination did not have a material impact on the Company's effective income tax rate. The examination of the Company's 2016 and 2015 New York State tax returns was completed in the first quarter of 2019, and did not have a material impact on the Company's effective income tax rate. The Company's 2017 and 2018 New York State returns are currently under audit.